Question
King Khan Corporation (KKC) manufactures kongs and kangs, the production of which requires considerable energy. Power generation department costs amounted to $4 million this month,
King Khan Corporation (KKC) manufactures kongs and kangs, the
production of which requires considerable energy. Power generation
department costs amounted to $4 million this month, for a total of 50
million kilowatt hours (kwh) supplied to the plant. Analysis shows that
40% of power generation costs are fixed. This month the Kang Dept.
made 5 million kangs, each using 4 kwh, and the Kang Dept. made 4
million kangs, each using 6 kwh.
In the following month, the power generation department costs amounted
to $4.3 million for 51 million kwh. Kong Dept.'s usage was the same, but
the Kang Dept. increased output to 4.1 million kangs, each using the
standard power allowance. If KKC employs an insulating cost allocation
mechanism, and fixed costs are shared equally, what are the total costs
charged to the Kong Department and the Kang Department in March?
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